I hope you had a wonderful long, relaxing Labor Day weekend … because Tuesday was no fun.
U.S. stocks finished their third day in a row down … the biggest rout we’ve seen since June. The S&P 500 index plunged 95 points … 2.8%. The Nasdaq Composite dropped 4%, as investors sold off Big Tech stocks. That index was down 10% over three sessions, putting it in correction territory.
Tesla Inc. (NASDAQ:TSLA) shares alone tumbled 20% for their worst single-day loss ever.
It was enough to make you want to flee to a cabin in Montana and put all your money into ranch land.
Don’t do that.
We’re all more than a little nervous after the coronavirus pandemic plunged us into a recession back in March … but this past week’s sell-off was the normal “churn” of investors taking profits in one sector and putting their cash to work somewhere else.
The outlook for the technology stocks we follow here remains as bright as ever.
You see … despite the Nasdaq’s brief dip into the correction zone, this is not a bear market for tech stocks.
However, we are in the middle of, as one investment strategist recently put it to Bloomberg, a “bear market for humans.”
That doesn’t sound great …
But that “bear market for humans” is likely the biggest driver behind the long-term bull market for technology.
Let me show you what I mean …
A Mantra That Has Become a Nightmare
If you’ve spent even a minute in corporate America, your boss has probably asked you to “do more with less”… or maybe you’ve been the one doing the asking.
Indeed, “Do More With Less” is such a widespread concept that most businesses apply it in some form — from the guy who manages the mall yogurt stand to the CEO who manages a Fortune 500 company.
Left unsaid is less what?
Often, it’s less people — fewer of those costly employees …
Pre-COVID-19, “doing more with less” usually meant some layoffs in order to save a few bucks. Post-COVID, layoffs and furloughs became essential for survival, and they ramped up big time … with U.S. unemployment reaching Great Depression levels during the worst of it.
But mass layoffs were devastating for brick-and-mortar retail, hospitality, and other businesses that need full-time employees to run effectively.
On the other hand, the technology sector barely skipped a beat. It was able to survive, and even thrive, because of the fact that it requires relatively few people to flourish.
The biggest and best performing technology firms simply don’t need as many employees as the “dinosaurs” of the old economy.
If you’ve got a store to run, but none of your employees can leave the house to open the store, that’s a whole day without sales. That’s what happened when the pandemic started.
Meanwhile, most tech companies sent their employees home, where they could continue working … and earning.
And so, while the Dow Jones Industrial Average is still down 1.75% year-to-date, the tech-heavy Nasdaq 100 is up 30.4%.
According to a recent analysis by Vincent Deluard, director of global macro strategy at brokerage StoneX Group Inc., firms that rely least on their employees have beaten more labor-intensive ones by 37 percentage points in 2020. Here’s what Deluard told Bloomberg:
I would summarize 2020 as the bear market for humans … Like many things, COVID is just accelerating social transformation, concentration of wealth in a few hands, massive inequalities, competition issues, and all that.
As humans disappear from the workforce, the rich get richer … and tech companies get richer.
That’s the “Technochasm” we talk about so much here. And, more than anything else, it’s why the wealth gap has, over the past 40 years, become so wide.
Take Netflix Inc. (NASDAQ:NFLX) as an example. The company employs just 8,600 people, and it’s up nearly 60% year-to-date.
Comcast Corp. (NASDAQ:CMCSA), which owns Netflix competitor NBCUniversal, has nearly 190,000 employees. It’s down 0.75% over the same stretch.
These companies are generating bigger returns with fewer employees, and that means more profits.
Deluard sees such a correlation here that he developed an employee-to-innovation formula that he uses to identify the best stocks.
Check it out …
A Moneymaking Formula
Here’s how Bloomberg describes that formula…
Deluard divided the S&P 500 into deciles based on a measure he calls “market value of intangible assets per employee” — the price of a company’s intellectual property and brand recognition compared with the number of people employed. The cluster with small numbers of employees relative to company value has returned 18% this year. The group with the highest labor intensiveness has seen a 19% loss.
Netflix ranks No. 2 on Deluard’s list. Not surprisingly, “a mix of financial, retail, and energy firms” come in last.
That’s why I put together this video presentation on the America’s wealth gap … and why dumping Wall Street’s “dinosaurs” and investing in technology is the only way to not get stuck in that growing chasm.
Now, as cool as it sounds, I haven’t tested Deluard’s formula out. That’s because, over the past 30 years, I’ve developed a single formula that allows me to see when a stock has hit what I call an “extreme of outcome.”
It’s a frame of reference that allows me to see the market clearly … without chaos, without bias, and without noise. And it tells me when the most hated stocks in the world — the ones that Wall Street is telling you to run away from — are most likely to soar.
In fact, I’ve used it to identify and recommend 41 stocks that have gone on to rise 1,000% or more.
I revealed this formula, for the first time ever, during the recent Survive & Thrive Summit.
If you missed out on this free event, you can still check it out for a limited time by going here.
On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends … before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south.
